Why Short Term Loans Make More Sense than Ever

Written By Peter Davis On November 25th, 2015

The payday loan industry has been around for quite some time. But the industry has seen a few major changes in recent months and years. In fact, we think that new regulations have made it such that payday loans/short term loans, make more sense in 2015 than they ever have before.

Unfortunately, a few less-than-scrupulous lenders have contributed to a negative reputation for the payday loan industry. But it’s worth pointing out that their actions certainly aren’t representative of all lenders. At PaydayLoan123, we’re delighted to see new legislation to protect borrowers, as this only serves to strengthen our responsible lending model.

New Legislation Works in Borrowers’ Favour

PaydayLoan123 has long been a champion of everyday borrowers. We’re registered under the Financial Conduct Authority (FCA) and have a longstanding record of responsible lending. Our solid reputation is due in large part to our ongoing commitment to the following standards:

We refuse to target those enduring financial difficulties

We don’t charge hidden fees

We make a point of providing customers with a transparent service they can understand

We don’t encourage customers to take out loans when we feel it’s not suitable for them to do so

We follow ethical marketing standards

We comply with all lending laws and regulations

The last point is particularly interesting of late, due to new regulations that have been rolled out in the UK. Back in 2014, new legislation limited the number of times that a lender could withdraw funds from a borrower’s account through the Continuous Payment Authority (CPA).

But that was only the beginning. New regulations introduced by the FCA at the start of 2015 have capped payday loan interest rates at 0.8 per cent per day. These regulations also included a cap on default charges, as well as a total percentage limit on how much borrowers can be expected to repay.

Regulations like this have made it more affordable than ever for borrowers in the UK to take advantage of payday loans, and it’s literally bringing relief to at least a million borrowers in the UK. This is great news for borrowers, as it means that the few-but-prominent predator lenders out there are now having a much harder time taking advantage of those who use their services.

But it’s also good news for responsible loan providers like PaydayLoans123. We’ve always had our borrowers’ best interests in mind, and regulations like this make it easier for first-time borrowers to feel comfortable with the transaction. In the event that they need an unexpected cash infusion, they’ll have the reassurance that above-board lenders are going to offer them an even more competitive deal than ever.

This is ultimately going to help our industry evolve – and that’s never a bad thing. But as you’ll see in the next section, these new caps also have strong tangible benefits for borrowers. In short, they’re bringing down the price of payday loans in the UK.

The Cost of Payday Loans is Decreasing

We mentioned above how new legislation has made it safer than ever for borrowers to take advantage of payday loans. Make no mistake. These new regulations have only one goal: protecting borrowers. As we said earlier, we welcome any protective measures that can give would-be borrowers more confidence, as we’ve always been committed to responsible lending.

In this section, we’re going to look more specifically at those regulations in order to learn how they are making life easier for those in need of short-term loans. As you’re about to see, these measures are making a big difference in the lending market. Here are a few of the key changes rolled out by the FCA:

✓ The regulations limit the number of times a loan can be rolled over.
This particular regulation actually rolled out in 2014, but we think it’s an important one. Previously, borrowers who were not able to repay their payday loan on time were able to roll it over to the following months without much oversight. While some viewed this as a level of flexibility, it also created problems for some who were simply unable to repay their loans on time. Small loans could turn into a much more significant debt.

Under the new regulations, you are only allowed to roll a loan over a maximum of two times before the entire balance is due. Not only does this stop unscrupulous lenders from taking advantage of cash-strapped borrowers, it also discourages those who would not be well-served by a short-term loan from seeking one. Those who foresee taking longer to repay the loan now have an incentive to either looking into longer-term lending solutions or drawing up a new budget at home.

✓ The amount lenders can charge for default fees has been capped.For people who struggle to repay their loan – whether because they shouldn’t have taken out a loan in the first place or they suffered an unexpected emergency – default fees added salt to the wound.

Now, lenders are not allowed to charge more than £15 for a default. Not only that: assuming the loan continues after the default, they are not allowed to charge more than the maximum 0.8 per cent per day (taken against the total outstanding).

✓ There’s a cap on total cost of the loan.
With the new regulations in 2015, there’s now also a limit to the total amount that lenders can charge for a given loan. That amount is a nice round figure – 100 per cent of the total amount borrowed.

Supposing you borrow £50, this means that the most you could be required to pay – including the capital along with all interest, fees and charges – will not exceed £100. Now, when you borrow from a payday lender, you can be sure of the absolute maximum that you could be expected to repay.

A New Dawn for Borrowers in the UK

As mentioned, PaydayLoans123 welcomes these developments, as they only serve to boost consumer confidence and add credibility to the industry. For a loan provider who has long made a point of creating fair products that can really help anyone in need of some extra cash, this is nothing but good news.

About the author

Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!